Saturday, October 19, 2013

Ireland as an Economic Tiger! (Bad news for China...)

Found an old article I started writing in 2007, when I finished some reading on the development of the Republic of Eire since independence. At the time it was still being hailed by foolish 'economists' as one of the new Tigers. 

I wanted to say then that any artificially repressed state economy will go gangbusters when the breaks are taken off. (See any Communist country, or even overly centralised Socialist country. ie: UK post the disastrous ‘nationalisations’ of the 50’s and 60’s when Thatcher took the brakes off). 

Also planned to say that just taking the breaks off would get a ‘great leap forward’, but did NOT mean that the country concerned was inevitable going to rule the world. Really, really wanted to make the point that starting a boom just means taking the breaks off, but sustaining it means serious and ongoing economic reform… 

Was also going to suggest that Ireland, and China would have the same trajectory, and plateau, as the Asian Tigers a decade earlier, or Japan prior to that… Wish I had published this pre GFC…


One of the best quotes from Yes Prime Minister is when they are trying to arrange seating at an international forum, or funeral, or something; and it has to be pointed out that seating nations alphabetically will put Iran, Iraq and Israel in a line.  Benard suggests tht at least they will be seperated by Ireland which might be better, only to have Sir Humphrey explain that Ireland never makes anything better.

As the programs were written at the time when the IRA was still getting huge amounts of American donated money to help fund blowing up school buses, pulling bank jobs, and kneecapping fellow Catholics for not being Republican enough; it is fair to suggest that the writers were not being unfair in their comments.  However it is not until you investigate the real details of the Irish problem that you realise just how sarky the comments were.

The Irish problem that most people think about is terrorism.  Actually these days (still writing in 2007 here) it is more blatant thuggery and crime, because one of the side effects of 9/11 is that even Americans have come to accept that funding terrorists is probably not a good thing: so the IRA are resorting to more traditional methods of fundraising and intimidation.  However that is only the tip of the iceberg.

The IRA and it’s more cuddly front Sein Fienne, would like to pretend that the real issue is ‘integration’ of Ireland, by which they mean reconquoring the northern provinces – preferably by force apparently, seeing the Northern irish have absolutely no desire to be 'integrated'. (This can be compared to the Northern States of the US insisting on their right to reconquor the Southern states, when they insisted that they had as much right to issue a Declaration of Independaence as the northerners had 90 years earlier... but we digress.)

For those who don’t know, the only reason that the northern provinces of Ireland are part of the United Kingdom instead of part of the Republic of Eire, is that they have long objected to being threatened and intimidated in the name of unity and justice.  In fact the Act of Parliament which finally made the northerners part of the United Kingdom – instead of just another part of Ireland – was provoked by yet another aggressive and threatening act by the Southern provinces... when they ditched their Dominion status and formally became a Republic. 

(Which they did partly in a fit of pique when their great European ally failed to humble Britain in a short war... Poor Eire had as little success subtly supporting Adolf Hitler against the evil English as the US did actively supporting Napoleon. Though I suppose the English didn't have to burn Dublin to the ground in the 1940's. Amusingly, it was American troops that were eventually detailed by the Allies to occupy Ireland if they invited the Germans in... More digression.)

Ireland was granted Dominion status in the 1920’s, but, because of unresolved sectarianism, two sub sections were created, and the people in various counties got to vote for which one they wanted to join.  This was all part of the vast enthusiasm for national determinitation which an idiot American President – Wilson – foisted on the League of Nations at the end of the Great War.  It lead to the collapse of relatively stable multi-national states such as the Austro-Hungarian and Turkish Empires (where peoples of many nationalities had lived in – relative – harmony for generations), and the formation of dozens of tiny competing statelets whhich have spent most of the 90 years since in bloodbaths of wars, pogroms and ethnic cleansing. (In 2007 I was thinking more about the Balkans, but in 2013 I am obviously more impressed by Syria and its neighbours...)

This misplaced idealism caused the partition of, amongst others, India, China, Palestine, Turkey, Yugoslavia, and of course Ireland.  It also caused the partitioned offshoots – Pakistan, Taiwan, Israel, large parts of the Middle East, and northern Ireland: to live in dangerous armed camps at perpetual fear of their obnoxious and aggressive neighbours.  (Or maybe I got some of those aggressors and aggrieved backwards – I suppose it depends on the year).

The division of the Dominion of Ireland was not the preferred option of the British.  It made no sense to them that a single island have two competing governments, and they couldn’t imagine that there was any good reason that such a minor point of doctrine would make for a permanent separation.  

However they underestimated the power of democracy.

Party politics in Eire got dirty fast.  Some of them were just the inevitable result of a bunch of ignorant peasants with no understanding of how modern states work trying to set up their own tailored idealised state.  They wanted to both reduce emigration, and return the state to an idealised rural peasant farm economy simultaneously:  without realising that you can only reduce the desire to leave by raising living standards - not lowering them.  (The result? More small farms inherited by the older sons who get married later and later, leaves an awful lot of women and younger sons wanting to leave. Fancy that!)   

As another example, attempts to ban women under the age of 21 emigrating to the much better educated and paid teaching and nursing jobs available in the UK should hardly have been considered sensible even by the dangerously stupid – but we are talking nationalistic, idealistic, and socialist politicians here. (Or maybe I should have just said 'politicians' without any qualification... except perhaps 'elected'?)

As a result the backward looking paternalistic and peasant oriented (and Catholic dominated) state of Eire had a hard time attracting the enthusiasm of even Catholics in the more modern, secular and freer north.  In the post Second World War period when the British introduced the welfare state, even the most hard nosed republican idealist would have had to think twice about taking the massive cut in living standards and life expectancy involved in voluntarily joining the south.

Not that voluntary joining seemed much of an option.  Repeated attempts to work out compromises in the 20’s and 30’s had fallen foul of democratic politics, as parties in both north and south dug in harder and harder to impress their constituencies.  The North put more and more theoretically unofficial restrictions on Catholics, but, to be fair, often in response to the South putting harsher and harsher restrictions on their Protestants.  Both ‘sides’ were behaving appallingly, but the demographics indicate that more and more people were leaving the South for the North throughout – both Protestants and Catholics.

The Republic of Eire belatedly realised that such stupid policies as excusing the idealised farmers from taxation, and making anything resembling a modern industry carry the tax burden, might be a problem. They finally faced the need for a modern economy, and took the brakes off. Leading economists and other stupid commentators were quickly encouraged to suggest that Eire was the ‘next big thing’ in European super economies. (Theoretically economists aren’t necessarily stupid, but in practice a surprising number seem to take pride in achieving that distinction.)

The truth is of course, that the ‘great leap forward’ by the economy of the Republic of Eire – like that of China and many other places – is not inevitably going to lead to an ever increasing standard of living for all their citizens. It will certainly lead to their living standards mostly catching up with, or even temporarily overtaking, those of their more advanced neighbours. But it is unlikely to see them completely supplanting those neighbours unless their institutions can adapt fast enough to keep up.
More likely the ‘great leap forward’, will lead to a ‘great big bubble’, and to an inevitable 'great big, bloody painful’ correction.

Having reviewed the above 2007 text in October 2013, and found it amusing, I will add some final comments on China, which many commentators are still imagining as a Tiger…

The Republic of Eire has leapt, and fallen, and is struggling to get back on its feet. This was both inevitable, and easily predictable, to anyone with a modicum of historical understanding of economics.

China has removed the brakes, and has leapt forward: and, despite the bullshit from the ‘inevitable superpower’, ‘world’s greatest economy’  theorists, China will have its fall and its pain, before it advances – far more slowly – again. Probably fairly soon, unfortunately. 

(Infrastructure investment in China is at impossible levels as a percentage of the economy; whole empty cities and go nowhere freeways have been built, often shoddily; wage levels and competitiveness are now being effectively undercut by many other countries such as Mexico; and the restrictions on private investment are leading to a property bubble that might make Spain look restrained. And that is before the Communist Party wakes up to the monster they have unleashed by educating a large middle class which now wants a say! Invest by all means, if you have funds to spare, but please don't fantasize about double figure returns for decades to come.)

This does not mean the end for either economy. It just means that future growth is going to take a lot more ponderous and painful reform than the first easy steps of removing aritificial roadblocks and letting her rip.

The moral of the story... if 'economists' announce that your economy is the next unstoppable tiger, be afraid, be very afraid.


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